Western Forest Products Inc. · TSX:WEF
Western Forest Products — Investor Presentation (March 2020)
39 slides from Western Forest Products's investor presentation, March 2020
Slide 1: Investor Presentation March 2020
INVESTOR PRESENTATION March 2020 TSX:WEF
Slide 2: Forward Looking Statements and Non-GAAP Financial Measures
Forward Looking Statements and Non-GAAP Financial Measures All financial references are expressed in C$ unless otherwise noted. This presentation contains statements and estimates that may constitute forward-looking statements under the applicable securities laws. Readers are cautioned against placi
Slide 3: Section 1: Company Snapshot
Section 1: Company Snapshot
Slide 4: Investment Highlights
Investment Highlights Margin-focused strategy with exposure to growing lumber demand High-value, diverse products serving global markets Business of scale and leader in our key markets Strong financial position and attractive dividend Specialty product focus provides greater earnings stability compa
Slide 5: Operations Snapshot
Operations Snapshot Margin-focused, specialty lumber company Sawmill Remanufacturing – Leading cedar lumber, timbers and Japan square manufacturer in North America British Columbia Serve global markets from Coastal Vancouver (Head Office) B.C. and Washington Arlington (acquired 2018) Expanded
Slide 6: Financial Snapshot
Financial Snapshot 5-Year average annual Annual Sales by Product1 revenue1 of $1.1 billion 6% 5-Year average annual Specialty Lumber 18% EBITDA1 of $112 million Commodity Lumber $1.1 Logs billion 58% Market cap. of ~$430 million2 18% By-products 58% Current quarterly dividend of Specialty $0
Slide 7: Executing on Strategic Priorities
Executing on Strategic Priorities Pursue margin-focused business opportunities and acquisitions Explore Grow wholesale lumber business Opportunities Growth opportunities in the U.S. Pacific Northwest and specialty wood products Optimize operations to improve margins Grow the Targeted, high
Slide 8: Section 2: Company Updates
Section 2: Company Updates
Slide 9: 2019 Board Leadership Transition and New Directors
Strengthen the Foundation: 2019 Board Leadership Transition and New Directors Michael Waites appointed as Chair of the Board Board On Western’s Board since 2014 and has significant executive Leadership management and Board experience Transition Previously CEO, and earlier EVP and CFO, of Finni
Slide 10: Inaugural Sustainability Report: ESG Commitment
Inaugural Sustainability Report Environmental, Social and Governance Commitment Inaugural sustainability report released in March 2019 Western is committed to: – The protection of the environment, the prevention of pollution and the sustainability of the resources in our care – Providing a safe
Slide 11: Limited Partnership with Huu-ay-aht First Nations
Strengthen the Foundation: Newly Formed Limited Partnership with Huu-ay-aht First Nations (“HFN”) Transaction completed in March 2019 TFL 44 Port Alberni Somass Sawmill HFN purchased a 7% interest from WFP in Alberni Pacific Sawmill a newly formed Limited Partnership (“LP”) TFL 44 – LP consists
Slide 12: New Wholesale Lumber Business Unit
Growing the Business: New Wholesale Lumber Business Unit Form strategic agreements with global suppliers, enabling WFP to broaden the scope of our specialty products offerings Combination of WFP’s existing product portfolio and complementary supply from new strategic relationships, will enable W
Slide 13: Acquisition of Columbia Vista
Growing the Business: Acquisition of Columbia Vista Acquired February 2019 for $37.7 million, including working capital Located in Vancouver, Washington Focuses production on Douglas fir specialty products for Japanese and U.S. markets – Complements our B.C. hemlock business into Japan Sawmill
Slide 14: Arlington, Washington Lumber Distribution and Processing Facility
Growing the Business: Arlington, Washington Lumber Distribution and Processing Facility Acquired January 2018 for $11.6 million 18 acre distribution and processing facility Overview 170,000 square feet covered storage Rail spur on site serviced by BNSF Increase production of targeted speci
Slide 15: Section 3: Company Overview
Section 3: Company Overview
Slide 16: Margin Strategy / Fibre and Processing Flow Chart
Margin Strategy / Fibre and Processing Flow Chart Standing Timber Log Availability Margin Decision Market Segments Log Markets Domestic Log Markets External Log Export Log Allowable Sales Markets Annual Cut2 Diverse and Unique Species Mix Hemlock / (AAC) For Logs Pulp Log Balsam ~34% of Logs Sold Ma
Slide 17: External Log Sales
Log Markets Determine Margin Decision Primary Target Logs by Value Log End Market Description Geographies 5-Year Average1 29% Western’s sawlogs consumed by External internal manufacturing operations Log WFP Sales Internal log supply supplemented by 19% Sawmills open market purchases to maximize
Slide 18: Manufacturing and Sales
Manufacturing and Sales Log Marketing Manufacturing Sales Supply Strategy Strategy Strategy Log diameter and margin determines lumber products manufactured Log Cutting Patterns Log Dimension 5 – 11” 11 - 18” 16 - 22” 20 - 30” 24”+ Product Narrow Wide Grade & Squares Timbers Dimension Dimension Appea
Slide 19: Specialty Products
Diversified Lumber Product Offering Primary Target Lumber by Value Lumber Products Description 5-Year Average1 Geographies Consumer-orientated products Western Premier softwood for external 23% Red applications Cedar Naturally durable Global $818 44% Specialty Products 12% million Specialize
Slide 20: Sample Lumber Products
Sample Lumber Products Diverse product offering manufactured from sustainably harvested forest profile 19
Slide 21: Specialty Product Focus
Specialty Product Focus Approximately 77% of lumber Relative Lumber Price Change Since Q1-2014 WFP Strike revenue is generated from 120% Impacted (3) non-commodity products 100% 80% Significant premium to 60% commodity lumber 40% 20% More stable margins through 0% the cycle vs. commodity peers
Slide 22: Seasonality of the Business
Seasonality of the Business Weather (snow pack, heat) Harvest Volume1 Closing Log Inventory1 (000 m3) (000 m3) and daylight can impact 1,282 harvest volumes and costs 1,072 1,091 1,059 Inventory levels can fluctuate 1,014 964 987 958 through the year, impacting working capital Q1 Q2 Q3 Q4 Q1 Q2
Slide 23: Capital Allocation
Capital Allocation 1 Quarterly dividend – Returned $210 million to shareholders since implementing dividend in 2013 2 Invested in high return capital projects in our existing business – Reducing costs, increasing efficiency and growing production capacity 3 Acquisitions and growth opportunities –
Slide 24: Strategic Capital Investments
Strategic Capital Investments Initiatives focused on: – Reducing costs – Increasing efficiency Duke Point Sawmill Duke Point Planer Duke Point Planer: Auto grading – Increasing production of targeted products – Growing production Applying proven Chemainus: Timber grading station Chemainus: Timbe
Slide 25: Competitive Strengths
Competitive Strengths 1 Flexible manufacturing platform that can target a variety of global markets 2 Sustainable, diverse timber base providing a unique range of products High margin specialty products for the U.S. market – cedar, timbers, 3 moulding & millwork, industrial applications Customer of
Slide 26: How is WFP Different From its Public Lumber Peers
How is WFP Different From its Public Lumber Peers 1 Pure play lumber and log, specialty company 2 Cedar and specialty products focused with commodity lumber component – Peers focused on commodity lumber with some specialty products – Significantly higher average product pricing versus commodity lu
Slide 27: Appendix: Supplemental Materials
Appendix Supplemental Materials
Slide 28: Western's Business to Benefit from Global Supply and Demand Factors
Western’s Business to Benefit from Global Supply and Demand Factors Factors Highly Attractive Underlying Supply / Demand Dynamics Increasing new home construction and robust repair and remodel U.S. Economic activity 1 and Housing Market Growth Transition from supply driven to demand driven marke
Slide 29: Demand Drivers: U.S. Economic and Housing Market Growth
Demand Drivers: U.S. Economic and Housing 1 Market Growth U.S. Repair & Remodel Expenditures 200 Expenditures (US$ billions) 150 100 $148 $158 $147 $147 $146 $152 $159 $137 $138 $135 $144 $128 $130 $125 $117 $122 $122 $130 50 $115 $115 $116 0 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 201
Slide 30: Demand Drivers: Supply / Demand Dynamics
Demand Drivers: Supply / Demand Dynamics 1 Will Positively Benefit the Industry Growing demand from U.S. and Asian markets and reduced supply from traditional sources is expected to benefit the industry long-term Housing Starts (North American and Lumber Export Equivalent) vs. Western SPF Lumber P
Slide 31: Demand Drivers: China Growth Has Changed Global Wood Products Demand
Demand Drivers: China Growth Has Changed 2 Global Wood Products Demand Dynamics A government commitment to housing and continued positive economic growth should support long-term demand for logs and lumber in China A deficit of domestic fibre will require China to rely on imports Rising wealth
Slide 32: Demand Drivers: U.S. Supply Exit From Japan
Demand Drivers: U.S. Supply Exit From Japan Will 3 Create Market Opportunity Japan continues to be a major source of demand for wood products and lumber from North America After the global recession in 2008, certain suppliers in the U.S. West increased export activities to Japan due to a lack of
Slide 33: Supply Drivers: B.C. Interior Fibre Supply Reduction
Supply Drivers: B.C. Interior Fibre Supply Reduction 4 Will Lead to Reduced Lumber Production B.C. Interior Allowable Annual Cut (“AAC”) 70 60 AAC (million m3) 50 68.0 64.1 65.7 67.0 66.9 66.4 62.2 61.5 60.8 61.3 60.7 62.1 55.4 56.5 40 50.3 50.3 49.9 49.5 49.0 48.1 46.9 46.8 30 2003A 2004A 2005A 200
Slide 34: Historical Financial Snapshot – Annual
Historical Financial Snapshot – Annual Revenue ($ millions) Strike Adjusted EBITDA ($ millions) Impacted (1) Strike Impacted (1) $1,187 $1,143 $1,197 $148 $153 $1,037 $1,082 $129 $144 $978 $117 $925 $109 $854 $808 $668 $62 $51 $37 ($2) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012
Slide 35: Historical Financial Snapshot – Last 8 Quarters
Historical Financial Snapshot – Last 8 Quarters Revenue ($ millions) Adjusted EBITDA ($ millions) Strike Strike $50 $328 Impacted (1) $43 Impacted (1) $310 $292 $293 $285 $276 $32 $18 $18 $15 $142 $80 ($17) ($18) Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-
Slide 36: Historical Cash Flow, Capital Allocation and Debt
Historical Cash Flow, Capital Allocation and Debt Cash Flow from Operations1 ($ millions) Capex2 ($ millions) Strike Impacted (3) $134 $128 $118 $111 $99 $87 $84 $59 $62 $58 $56 $55 $50 $38 $44 $37 $32 $19 $11 $12 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 2014 2015 2016 2
Slide 37: Sawmills and Remanufacturing Facilities
Sawmills and Remanufacturing Facilities Sawmills Production 2018 Production Mix4 Log Diameter Sawmill Location Capacity1 Douglas Yellow Focus 20192 2018 WRC3 Hemlock Fir Cedar Ladysmith Ladysmith, BC Small 90 52 67 -- 100% -- -- Cowichan Bay Duncan, BC Medium 215 64 177 13% 87% -- -- Saltair Ladysmi
Slide 38: Analyst Coverage
Analyst Coverage Analyst Firm Analyst Name Contact • 604 331-3047 CIBC World Markets Hamir Patel • hamir.patel@cibc.com • 604 659-8246 Raymond James Daryl Swetlishoff • daryl.swetlishoff@raymondjames.ca • 604 257-7048 RBC Capital Markets Paul Quinn • paul.c.quinn@rbccm.com • 514 287-3627 Scotiabank
Slide 39: Investor Relations Contacts
Investor Relations Contacts These materials have been prepared by Management of the Company. No regulatory authority has approved or disapproved of the contents of these materials. These materials do not constitute an offer to sell or the solicitation of an offer to buy any securities of the Company
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